It was good to get a telephone call out of the blue from the chief executive of a longstanding AIM company. “Would you like to drop by for a coffee at my office one of these days?” asked Philip [not his real name]. “I would like to talk to you about my board, please.”

I checked my diary and offered Philip some dates. Although this was a company whose fortunes I had followed in the past, I needed to bring myself up to date. My research revealed that—after showing some early promise—the business had not made much progress recently. This was reflected in the poor share price performance. Activists were also periodically circling and causing some angst to the board.

When we met, Philip cut directly to the chase. “I am looking to refresh my non-executives and wonder whether it might appeal to you to join the board?” he asked.

I explained that I had taken a look at the publicly available information on the company, adding: “But might you offer me your analysis of how things stand: the challenges and opportunities as you see them?”

‘A lack of challenge’

Philip offered me his view which, like that of all confident chief executives, erred on the balance of opportunity. He concluded that what was holding the company back was “a lack of challenge from his board”.

“I would really value your joining us and feel we would benefit from your experience and reputation,” he added, persuasively. I was immediately reminded of one of the first rules when you are approached to take on a role, whether directly or through a search firm: beware of the flattery. It has a tendency to cloud judgement.

I thanked Philip for the invitation and offered that I would be prepared to explore this further but only after I had spent some time forming my own view as to the opportunity. I was mindful that, at the headline level, the issues surrounding the share price performance needed attention and that might be a challenge. I needed to be sure I knew where the levers were to address this.

“I would like to meet with all the directors, preferably individually, attend a board as an observer and be given access to talk with or meet the key advisors to the company, please,” I said. “This sounds like quite a bit of work,” Philip replied. “Would we look to pay a fee to you for the time involved?”

Due diligence

Although this was a due diligence exercise for me, Philip did recognise the value of such an outside view so we agreed a suitable fee. This was less than existing non-executives were being paid but was intended to be meaningful to concentrate minds.

I set some time aside and had discussions of varying length with board members, the audit partner, nomad/broker and lawyers. A pattern quickly emerged of a dominant chief executive not used to challenge and not welcoming of it. But rather than jump to a conclusion, I waited to attend a board.

The agenda, papers and meeting dynamic confirmed my view that the directors, whether executive or non-executive, largely went along with the chief executive. Challenge, push back or debate was all but absent from the board. This was well illustrated by some recent instances of the chief executive being given his head to pursue some contract opportunities. These had hit trouble and the board were now struggling to assert control over them.

No members of the board came out well in my assessment. The non-executives were weak and pliant, and the executives, particularly finance, more so. Performance evaluation, although in place, appeared to be quite superficial. Above all, succession planning had been neglected to such a degree that without significant changes in non-executive and some executive directors, the company would continue its sorry drift. These issues would appear to have been at the centre of the activists’ concerns.

Being a significant shareholder, it was difficult to think that the chief executive himself might be replaced, but he certainly needed to change his spots. Philip was right to conclude that he needed challenge but this was coupled with a seeming lack of self-awareness.

I needed to exercise some careful judgement to deliver a difficult message to Philip. How well it landed would likely impact my appetite for and acceptance by the board.

Philip made clear that a board seat remained available to me, even though my carefully couched message was not well received. Following his reaction I declined to take up the appointment because my due diligence had not identified any other immediate catalysts for necessary board change. I have since watched from a safe distance as the share price has continued its downward trajectory.

The Secret NED has served on the boards of a number of public and private companies.